The futures market for water rights trading in California: Analyzing the emergence of a controversial experiment

• A complex interplay of factors led to the launch of the first water futures market. • A framework from policy analysis was applied to uncover the causal mechanisms. • The launch is an extreme case of private business actors shaping water governance. • It marked a new peak in the financialization of water in times of growing scarcity. • The futures have fueled a heated debate around practical and ethical arguments. This paper presents a qualitative case study of the world's first water futures contract in California, a market that enables hedgers and speculators to bet on water prices. It is attempted to explain which factors shaped the emergence of the unique market by applying the Political Process Inherent Dynamics Approach (PIDA), an analytical framework from the field of environmental policy analysis. In addition, the topics of heated debate that have surrounded the new market are summarized and contextualized. To obtain the relevant information, expert interviews, complemented by online sources, were subjected to a Qualitative Content Analysis. It is concluded that the launch of the contract is an extreme case of private business actors shaping water governance, made possible by a longstanding market philosophy in the US, that gives leeway for actors of financialization to create facts. In the political-administrative realm, a lack of accountability and will to interfere seems to prevail. However, nongovernmental organizations (NGOs) and other actors have led efforts to abolish the market, criticizing water futures in ways that resonate with broader debates about privatization and food futures.